Wyndham Hotels & Resorts' select-service franchise business helped the company start 2021 better than expected, with domestic revenue per available room down 25 percent from 2019’s numbers but tracking ahead of what the company had estimated internally for the first quarter. “And with consumer demand continuing to increase, our RevPAR has also improved significantly throughout the month of April,” President and CEO Geoff Ballotti said during the company’s Q1 earnings call with investors.
According to STR in 2019, occupancies for branded hotels in Wyndham’s core segments were 300 basis points higher than nonbranded hotels, while costs were 500 basis points lower. In 2020, STR reported that branded hotels in the economy segment outperformed independent hotels by 1,300 basis points, while midscale branded hotels outperformed independent hotels by 500 basis points. “Prospective new franchisees are looking for immediately recognizable brands like ours in the economy and midscale space—brands that can provide strong central system contribution at a lower distribution cost,” Ballotti said.
Month-to-date, domestic RevPAR is down 7 percent to 2019, with economy occupancy and RevPAR now running ahead of 2019 levels. The company's midscale brands are right behind, CFO Michele Allen said, with 2021 RevPAR now within about 10 percent of 2019 levels.
“Across all brands, we're seeing occupancies in the 70s in Florida, Arizona and Utah, in the 60s in almost a dozen other states, including California, Texas and Georgia,” Ballotti said. “In total, 75 percent of our domestic system are in states that are at or above 50 percent occupancy month-to-date.”
By the Numbers
Global and international RevPAR began to lap the onset of the COVID-19 pandemic in January while the U.S. began to lap its onset in March, according to the company. As such, comparisons to 2019 (on a two-year basis) offer a better look at long-term trends. On this basis, global RevPAR declined 31 percent—reflecting a 25 percent decline in the U.S. and a 45 percent decline internationally. The 25 percent decline in the U.S. represents continued sequential improvement compared to a decline of 31 percent in the fourth quarter of 2020. The 45 percent decline internationally is consistent with the fourth quarter 2020 performance, and was in spite of China occupancy softening to 40 percent as a result of regional lockdowns. “This was more than offset by favorable occupancy trends in other international regions due to the relaxation of some local restrictions,” Ballotti said.
Net income was $24 million and adjusted net income was $33 million. Adjusted earnings before interest taxes depreciation and amortization was $97 million.
Global revenue per available room declined 11 percent compared to first quarter 2020 and 31 percent compared to first quarter 2019 in constant currency.
Revenues declined from $410 million in the first quarter of 2020 to $303 million in the first quarter of 2021. The decline includes lower pass-through cost-reimbursement revenues of $55 million in the company’s hotel management business, which have no impact on adjusted EBITDA. Excluding cost-reimbursement revenues, revenues declined $52 million primarily reflecting an 11 percent decline in constant-currency global RevPAR.
The company generated net income of $24 million, or 26 cents per diluted share, compared to $22 million, or 23 cents per diluted share, in the first quarter of 2020. The increase of $2 million, or 3 cents per diluted share, was a result of the company’s COVID-19 cost mitigation plan implemented in April 2020, lower volume-related expenses and the absence of restructuring and transaction-related expenses, which were partially offset by the global RevPAR decline.
Development
During the first quarter of 2021, the company’s global system grew 20 basis points, reflecting strong growth in the company’s direct-franchising business in China, primarily offset by the impact from supply chain delays on new construction openings in the United States. As expected, terminations normalized in the first quarter and the company remains on track with its goal of achieving a 95 percent retention rate for the full year 2021.
The company awarded 112 new contracts this quarter compared to 115 in first quarter 2020 and 124 in first quarter 2019. At March 31, the company’s development pipeline consisted of approximately 1,400 hotels and approximately 187,000 rooms, growing sequentially by 120 basis points, 70 basis points domestically and 150 basis points internationally. Approximately 64 percent of the company’s development pipeline is international and 75 percent is new construction. Approximately 34 percent of the new construction pipeline under development has broken ground.
2021 Projections
The company is not providing a complete outlook for full-year 2021 given the RevPAR uncertainties ahead; however, the company is updating the projections provided in February:
- Net rooms growth of 1 percent to 2 percent, consistent with February’s projection.
- Every point of RevPAR change versus 2020 is now expected to generate approximately $2.8 million of adjusted EBITDA change versus 2020 (increased from $2.5 million per point in February).
- License fees are expected to be $70 million reflecting the minimum levels outlined in the underlying agreements, consistent with February’s projection.
- Marketing, reservation and loyalty expenses are not expected to exceed marketing, reservation and loyalty revenues, consistent with February’s projection. As such, the company expects no meaningful impact to full-year 2021 adjusted EBITDA from the marketing, reservation and loyalty funds.
The company does not expect any meaningful special-item cash outlays in 2021, consistent with February’s projection.